Republicans defy Obama on tax cuts

Washington - Defying US President Barack Obama, the Republican-held House voted on Wednesday to extend tax cuts for all Americans, framing a partisan divide over an issue that will not be resolved before November's election.

House lawmakers rejected a substitute Democratic plan that would have let taxes rise for top earners, and then voted 256 to 171 to extend a package of Bush-era tax cuts for everyone for another year.

The move collides with a recently approved Senate bill that would extend the tax breaks for families making under $250 000 a year - about 98% of Americans. Obama has threatened to veto a bill that also extends the cuts for those making more than that threshold.

But House Republicans said raising taxes on job creators like small businesses in a sluggish economy that is failing to grow enough to get the jobless rate below 8% is not the answer.

The duelling bills are seen as little more than political positioning three months before the election, in which Obama is seeking re-election.

Lawmakers will then be forced into a political showdown over how to avert at least some of the tax hikes that are looming at the end of the year, when the existing rates expire.

Job creation

"America is at a crossroads... and the question is which path will our country take?” Congressman Dave Camp, chairman of the House Ways and Means Committee, said on the House floor.

"The Democrats' path includes tax hikes that will cause small businesses to lose 700 000 jobs,” he said, citing a corporate report hailed by Republicans but panned by Democrats.

The Republican plan, he said, would lead to the creation of up to one million jobs in the first year alone.

Congresswoman Diane Black characterised the bill passed by her fellow Republicans as nothing less than a bid to "keep the American dream alive”.

But Democrats don't see it that way. The party's House leader Nancy Pelosi warned that the bill would "greatly increase the deficit” and raise taxes for around 25 million middle-income Americans by an average of $1 000.

She said the Democratic plan to allow tax breaks to expire on rich Americans, combined with an end to tax cuts for the wealthiest of estates, would raise nearly $1 trillion, which would go far towards the $1.2 trillion needed in order to avoid severe automatic spending cuts to domestic and military programmes.

Unlikely move

The automatic cuts, written into 2011 legislation as part of the deal in Congress to raise the debt limit, are among several pieces of unfinished financial business, including the Bush-era tax cuts, that are described as the "fiscal cliff” facing the nation if Congress does not act.

House Speaker John Boehner wrote a letter on Wednesday to Senate Majority Leader Harry Reid offering to reconvene the House in August, during the summer recess, "should the Senate act on these priorities”, but such a move was unlikely.

In a statement, the White House lashed out at House Republicans for approving a bill it said would "shower millionaires and billionaires with a $1 trillion tax cut that will inevitably be paid for by gutting investments in critical programmes needed to create jobs and strengthen the economy”.

White House spokesperson Jay Carney said Obama would "continue to call on Republicans in the House to stop holding the middle class tax cuts hostage”, adding: "The House needs to follow the Senate's lead and get this done.”

The vote came on the same day a Washington think tank said Republican White House hopeful Mitt Romney's plan to cut taxes and get the economy back on track would hurt the poor and depress revenues.

His proposed plan, which involves cutting income tax rates by 20% and slashing the corporate tax rate, would mean people earning over $1m a year would get an average tax cut of around $175 000, while those earning less than $30 000 would get an increase of around $130, the Brookings Institution said.

The House is set to vote on Thursday on a tax reform bill which, if enacted, would see the tax code simplified, individual tax rates reduced to just two levels, and corporate tax rates slashed.

Obama has threatened to veto that bill too, with the White House saying the legislation would "carry a price tag of about $5 trillion over 10 years”, which could "explode the deficit”.

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